Important Forex Terms And definition:
As you dive deeper into forex, the more you’ll come across important forex terms that will require your understanding. Below is a list of some of the most common important forex terms that is essential to know and understand as you aim to become a profitable forex trader.
SUBSCRIBE TO OUR YOUTUBE CHANNEL
A – forex terms
This is the simultaneous buying and selling of foreign exchange pairs in order to realize a profit from a discrepancy between foreign exchange rates in the market at the same time in different markets.
2. Area of confluence
Area of confluence refers to the area in which multiple structures are congregate forming a strong barrier (wall) that prevents the market price from going future. The more structures with that area, the higher the probability that price will fail to break that area.
3. Ask price
In forex trading, the ask price is the price at which a forex broker allows traders to buy at. This goes without saying that the ask price is the top line shown in your trading terminal chart (usually “red” by default in Metatrader) while the bottom line is called the bid price.
4. Asset class
An item that has value; an investment such as stocks, options, or Forex.
B – forex terms
1. Base currency
The currency in which your trading account is based. Also, it is the first currency within a currency pair that is being traded. eg: EUR/USD In this case, the EUR is considered the base currency.
2. Bear market
A bear market is a term given to the long-term downtrend trend of a market price. This means that the bears (sellers) in complete control of the market, hence it’s highly recommended that a trader only seek sell opportunities.
3. Bid price
Bid price is the opposite of the ask price, as such it’s the price value denoted by a forex broker at which traders are allowed to open sell positions at. It is the bottom line of the two in a trading terminal and is normally “blue” of color by default in Metatrader.
4. Break and Retest
Break and retest refer to the action of price pushing above or below a market structure (HH, HL, LH, LL) which then retrace shortly after in the form of a corrective move to that structure in topic. Price retracing to that said structure is called the retest.
5. Bull market
A bull market is a trending financial market that is in a complete upward movement over an extended period of time. This goes without saying that it’s best to only seek long (buy) positions for a greater probability of winning.
6. Buy limit
A buy limit order is a pending order that is set to automatically execute a buy trade as soon as price reaches the desired value indicated in the parameter when setting a buy limit pending order. Traders use buy limit with the expectations that the market price will soon reverse after a small retracement, as a result, a buy limit order is set to enter a buy position when the market price reached the possible reversal zone. If properly executed, a trader would be buying at the lowest point at the start of an impulsive move.
7. Buy stop
Buy stop order is another pending order that is used to automatically open a buy position after the market price reached the indicated price value indicated in the settings. The difference between a buy stop and buy limit is that, buy limit is set below that of the market price with the expectation of a reversal. While on the other hand, buy stop is set above the current market price value with the expectation that price will continue to push upwards.
C – forex terms
Commission in forex trading is the fee that your forex broker charges to your account for opening and closing a trade. This is typically applied to raw/ zero/ tight spreads accounts. If a broker is charging $8 for every standard lot (1.00) round turn, it means that for every .01 trade size open, $.04 is the charge for both opening and closing of the trade.
2. Complex pull back
a complex pullback is described as a retracement with multiple swings in the opposite direction of the general trend. More often than not, a complex pullback normally ends at the previous low/ high that was created. Hence why it is highly advisable to place your stop loss a few pips above the previous high in a downtrend (previous low in an uptrend) to avoid being stopped out unnecessariliy.
In forex trading, confluence is the combination of different trading strategies all indicating the same possible direction of the market price. It is believed that the more confluence a trading setup (opportunity) has, the higher the probability of that trade going in the indicated direction.
4. Confluence Trading
Confluence trading is the strategy of using multiple forex trading techniques (eg: candlestick patterns, price action patterns, indicators, etc) to added confirmation about the possible future direction of the market. It’s a common thought that the more confluence there are in a trading setup, the higher the probability of it going in the indicated direction.
5. Confluence Zones
“Confluence zone” is another term for an area of confluence which are areas where multiple structures are in conjunction creating a strong barrier that prevents the market price from going further.
6. Corrective move
The corrective move is the short movement market price does in the opposite direction of the general trend. This is more commonly know as a pullback or retracement.
D – forex terms
1. Demand zone
A demand zone is an imaginary area/ zone that is of the assumption that traders gather to enter long positions (buys). Being that many traders are entering at this zone, this causes the market price to push upwards more aggressively than normal. Let it be known that zones (areas) are a range of price (1.98671 – 1.98520) rather than one specific price.
A downtrend is one of the most common terms used in forex trading. This term is used to describe the downward direction in which the market is trending.
F – forex terms
Forex is the shortening term for “FOReign EXchange” which is the buying and selling of different currencies around the globe.
2. Forex market
The forex market is the largest financial market that trades approximately $6 trillion (USD) daily from Monday to Friday. This market shows the relationship between one currency to another in terms of exchange rate (ie: the cost of buying one currency for another).
eg: How much Canadian dollar (CAD) a person needs to buy one US dollar ($1).
H – forex terms
1. Higher high
A higher high is the name given to the pivot point where market price retrace/ pullback after an impulsive move upwards.
2. Higher low
Higher low is the point where the market price ends a retracement and is about to start an impulsive move upwards. identifying Higher highs and high lows are part of reading market structures to determine the trend of the market. In this case, higher highs and higher lows are found/ created in an uptrend.
I – forex terms
1. Impulsive move
Impulsive move is the term given to the upward (in an uptrend) or downward (in a downtrend) thrust that market price does in the direction of the general trend. These movements are longer in comparison to the corrective moves.
The word Indices is the plural (meaning more than one) for the word index.
An index is a single representation of a basket of prices relating to a particular asset’s underlying performance. eg: DXY (US dollar index) shows the USD performance against all its major trading partners. If the USD is gaining value against all or most of these other currencies, the DXY will be trending upwards; vice-versa, if the USD is losing value, the DXY will be trending downwards.
L – forex terms
Leverage is the borrowed funds to increase one’s purchasing power to beyond that of the available cash in one’s trading balance. In forex trading, leverage is commonly viewed as a double edge sword that can work in and against a trader’s favor. Leverage is used to increase one’s earning potential, likewise, it also increases the potential loss. High leverage is also one of the common causes of why most forex traders lose their money.
A lot in forex trading is the position size with which a trader opens a long or short position/ trade. As such, they are commonly referred to as ‘lot size’. Depending on the size, the lot is described as:
- Standard (1000.00 > 1.00)
- Mini (.99 > .10)
- Micro (.09 > .01)
3. Lower high
Lower highs are the high points at which market price reverses after a pullback, which are more prominently found in a downtrend.
4. Lower low
A lower low is one of the characteristics found in a downtrend that differentiate it from an uptrend. A lower low is the low point where market price reversed after an impulsive move.
M – forex terms
The term margin in forex trading describes the money that a trader needs to have available in his/ her trader account to open a trade.
2. Margin call
Margin call is when a trader losses most of his money or is using lot sizes that are too big for the trading account and the available balance is insufficient to maintain the current open trades. In this case, the forex broker would be forced to close all your running trades (usually in a loss). Some brokers like ICmarkets would send email notifications about the potential margin call.
P – forex terms
1. Pending order
Pending order is a collective term that describes the automatic order execution set by a trader to open a position at a specified price. To date, the pending orders that are used throughout are:
- Buy stop
- Sell stop
- Buy limit
- Sell limit
- Buy stop limit
- Sell stop limit
PIPs is the acronym for percentage in points, which is the measurement in market movement from one price to another.
3. Pull back
A pullback is another name for a retracement or corrective move. This is the smaller movement in the opposite direction of the general trend.
Q – forex terms
1. Quote currency
The quote currency is the latter currency in the ticker of a currency pair that is being traded. Eg: EUR/USD In this case, the USD is considered the quote currency.
R – forex terms
A retest is the action of price retracing to a structure that was previously broken. Please note, not all structures are retested after being broken, as it depends on the momentum in the market.
In forex trading, the term resistance is given to the structure that acts as a roof that prevents the market price from going up further. This goes without saying that resistance is always above market price. All the structures above that of the market price are potential resistance.
A retracement, as it’s more commonly known, is the smaller movement that price does in the opposite direction of the bigger trend. These movements are also called pullbacks or corrective moves.
4. Round turn
Round turn is the collective term given to a trade that has been opened and closed. A trade that has only been opened is not considered a round turn until it has been closed.
T – forex terms
1. Trading Strategy
A trading strategy is a technique that a trader uses to exploit the forex (or stock) market to make money. This goes without saying that trading without a strategy is no different than willingly giving all your money to the market.
S – forex terms
1. Sell limit
A sell limit is a type of pending order that automatically executes a sell order after the market price reaches a specified price value. This is placed above that of the market price with the hope that the price will reverse after retesting a previously broken structure.
2. Sell stop
A sell stop is a pending order that is set below that of the market price to be triggered after the market reaches a specified price value.
The term “spreads” in forex trading is the difference between the bid and ask price. Spreads are one of the most common means a forex broker makes money, as such different brokers have different spreads. However, the tighter the spreads, the more beneficial it is to a trader.
Structure is the collective term given to support and resistance in forex trading. In other words, when speaking about structure, it is a reference to either one or both support and resistance.
A support is the structure that is below the current market price. This means that once a resistance is broken, and the price is now above that structure, that structure is now acting as a support.
6. Supply zone
A supply zone is a virtual area that is of the assumption that a large number of sellers wait for the market price to open sell positions. Additionally, to a lesser extent, these are areas where traders swift their bias from buying to selling.
Swaps are fees charged by your forex broker to carry any open trades over to the next trading day. If a trade has been closed before the day has ended, that trade would not be charged any swap fee.
8. Synthetic Indices
These are artificial indices that are cryptographically protected while having their price movement generated by a computer. To date, synthetic indices were curated and only offered by the European regulated broker, Deriv Limited.
V – forex terms
Volatility is the virtual force/ pressure behind market movement. The forex market needs volatility to move, as such, without volatility, the market cannot move.
More forex terms will be added to the glossary as we go further. In the mean, we recommend taking at look at the important links below if you are interested in becoming a profitable forex trader.
The forex terms defined in this glossary are what were deemed important to the Rhasfx forex trading course. However, a more extensive glossary can be found on forex.com